ERG Petroli Pietro Giordano
Table of contents Highlights ERG Petroli retail strategy 2 2
Downstream / Marketing ERG (100%) ERG Petroli Inland Refineries Sarpom Trecate (26%) Raffineria di Roma (22.5%) Supply & Logistics SI.GE.MI (26 %) Savona S.M. Trecate Priolo logistics RdR logistics Porto Petroli (9%) Marketing Retail (~2,000 service stations) Wholesale Participation in 11 resale/service companies Lubes (Blending & Sales) ERG Petroleos ERG Suisse 3
Integrated downstream Robust Integrated Downstream Base Case Stable competitive position in profitable Italian retail market Strong placing in non-retail Healthy position in logistics and in inland refining Economic sustainability in Spain Step change if major opportunity materializes Strategic JV/acquisition in Italy Expansion/withdrawal strategy in Spain 4
Consolidate and optimise refining, logistics and nonretail segments Focus on Retail New marketing approach based on customer Total Value Proposition Growth opportunities 5
ERG Petroli participation in Rome refinery Total and Shell have announced the swap of their minority interests in Rome (20% Shell) and Reichstett (18% Total) refineries. Erg Petroli has a pro-quota pre-emptive right over 5.6% (or 4.5 kbd) of Rome refinery increasing its shareholding to 28.1% (or 22 kbd). Exercise would: Enhance Erg Petroli presence in a very strategic market Open attractive investment opportunities to improve the refinery profitability in the medium term. 6
ERG Petroleos Current operations substantially consolidated with (marginally) positive EBITDA attainable Further base case strengthening through potential partnership with local logistics and wholesale operators Lacking realistic and significant growth opportunities, seriously considering withdrawal options. 7
Retail scenario in Italy Industry motor fuels volumes slightly decreased (-1.6%) in first 10 months 2005 vs. previous year; 4.3% growth of automotive diesel oil (53.7% of total fuel volumes) and decline of gasoline (- 7.5%). Good profitability also in 2005 in spite of outstanding refining margins: Industry Rationalisation Plan completed with some shortfall due to partial implementation by resellers Liberalisation continues to proceed albeit slower than expected. 8
Retail scenario in Italy Main Competitors: ENI s market share reduced slightly below 30%. Remain the market price setter favouring profitability. Esso capitalising on historical strong position and maximising margins. API won the I.P. tender, expected to pursue network profitability as main objective to repay the investment. Others: Total, Shell, Tamoil maintained an average market share of about 7% following leader s behaviour on pricing. Hypermarkets lobbying pressure increasing but limited market penetration expected even in highly liberalised scenario. 9
Gasoline: 2005 monthly average pump prices and Platt s 1,32 1,29 1,26 1,23 1,20 0,70 0,65 0,60 Pump Prices /Litre 1,17 1,14 1,11 1,08 1,05 1,02 0,99 0,96 0,93 0,55 0,50 0,45 0,40 0,35 Platt's H-Cif Med /Lit 0,90 0,87 0,84 0,81 0,78 0,30 0,25 0,20 January February March April May June July August September October November ERG AGIP ESSO Market Average Platt's Gasoline 10
Diesel: 2005 monthly average pump prices and Platt s 1,23 1,20 0,68 Pump Prices /Litre 1,17 1,14 1,11 1,08 1,05 1,02 0,99 0,96 0,63 0,58 0,53 0,48 0,43 Platt's H-Cif Med /Lit 0,93 0,90 0,87 0,38 0,33 0,84 0,81 0,28 0,78 0,23 January February March April May June July August September October November ERG AGIP ESSO Market Average Platt's Diesel 11
IP Tender IP tender won by API Network about 3,000 outlets of which only 7% company owned and 93% dealer owned expiring in the next 2/3 years. IP market share around 7% Announced acquisition price: Euro 186 million. API original network of 1,650 outlets with a market share of 5% Consolidated market share will reach about 12% with sales of about 4.6 million cubic metres 12
% 29,8 29,9 30 Retail Market Share (Erg estimate) Erg consolidating market share for gasoline and improving for diesel without major outlet acquisition nor network restyling Jan-Oct 2004 2005 estimate 25 20 17,1 17,1 15 10 5 0 10,6 10,4 7,04 7,15 6,8 6,6 8,0 8,1 6,2 6,3 4,9 5,0 7,0 6,8 0,3 0,3 2,2 2,3 White pumps % 0,1 0-0,1-0,2 13
Hypermarket segment Current market share at around 1.4%, outlets mostly branded by oil companies (85 out of 90) Only 6 new outlets opened in 2005 Strong lobbying to liberalise oil retailing recently brought to EU level Penetration expected: 2-4% max in the next five years. Only a challenge or also an opportunity? Erg currently second only to Shell s position in hypermarket segment. 14
ERG Retail Network Profile Other Kerb pumps Filling st. Service st. Motorways 0,6% 0,9% FORECAST 1,2% 27,0% 33,4% 38,5% 19,0% 26,3% 26,8% 48,3% 36,4% 31,2% 5,1% 3,0% 2,3% Market Share 1996 6.1% 2000 6.6% 2005 7.15% 15
Retail Strategy Consolidate/expand market position in long term profitable market (oil and non-oil) becoming a first class retailer: Continue to modernise primary network and to seek new outlets Realistically develop non oil business New marketing approach: Focus on local micro markets and customer segments Upgrade marketing mix Reshape retail organization consistently Implement network restyling 16
Motorway service stations 63% of industry licenses (293 out of 467) expired in 2003/2004 Erg scored highest increase in market share (from 3.6% to 5.7%) at lowest average royalty (Erg avg. 33 /m 3 vs. industry avg. 45 /m 3 ) for tenders issued by Autostrade per l Italia SpA (219 out of 285) In 2005 to date ERG bid for 19 locations (3 of which already with ERG brand) and is waiting for tender results. Other private licenses will expire in 2006-2007 (86 in 2006): Erg will continue aggressive bidding. 17
Good results of Diesel One premium grade after one year from launch Second after Shell to launch a new performance diesel product. Main objective is margin improvement not volume. Good results achieved in spite of high fuel prices and increased competition on performance products segment: 800 sites currently covered, increasing to 1,000 in coming months. Potential shift from regular grade at around 15% (actual at 12%). Appropriate ERG s price positioning: 5 eurocents/litres higher than regular diesel. Low sulphur Diesel One (10 ppm) offered to customers on about 200 outlets in major consuming areas. 18
Non-oil activity Scenario Slow deregulation of opening hours and licenses Industry investments focused on proved Italian formats (Bar) Strategy Implement Bar & Shop format (recently defined) Convenience Store only on primary locations Sole national supplier (80% references) Improve category management and information system Exploit JV established with Strasburger (first class international C-store operator) 19
Retail capital expenditure profile Euro millions 2002-2004 avg 2005 Plan 2006 08 per year Forecast avg per year New Outlets / Acquisitions 16.1 15.0 18.0 Modernization 5.1 6.1 6.0 Safety & Environment 5.1 8.7 8.0 Equipment Replacement 3.0 2.7 3.0 Sub total Restyling Program 29.3 0.4 32.5 1.0 35.0 25.0 Total 29.7 33.5 60.0 20